Postal Service, FedEx Form Alliance

Fed Ex, Postal
The Postal Service and longtime rival FedEx announced an agreement Wednesday that officials said will speed up the mail and expand FedEx's retail availability across the country.

"These agreements will leverage two great networks: the extensive reliability of FedEx planes and the coast-to-coast retail presence of the Postal Service," Postmaster General William J. Henderson said.

"Whenever the public and private sectors work together, the real beneficiary is the American public," added Frederick W. Smith, chairman of FedEx.

Under the deal, FedEx will haul Express Mail and Priority Mail -- as well as some first-class mail -- for the post office. It will provide guaranteed space at a cost of $6.3 billion over seven years.

And FedEx will pay the Postal Service between $126 million and $232 million to place its collection boxes at post offices, depending on the number of boxes eventually installed.

The post office said this is a nonexclusive agreement that it will make available to any company that offers overnight package service nationally.

"The Postal Service delivers Main Street and FedEx provides an air fleet," Henderson proclaimed as he gave Smith a model of a neighborhood post office in exchange for a model FedEx airplane.

FedEx stock was up 3 cents to $42.30 in mid-afternoon trading.

Based in Memphis, Tenn., FedEx has some 665 aircraft that operate a worldwide overnight delivery system. The post office has a smaller fleet of leased planes and ships mail on commercial airlines.

Henderson said the new contract will put all Express and Priority mail in FedEx planes, providing fast, dependable service. He said the post office will phase out its current leases and close its hub in Indianapolis.

"Overall, service to Americans should improve dramatically in Priority and Express mail and somewhat in first-class," Henderson said.

The two cooperating delivery systems have long been seen as rivals, but Smith said their products differ.

While FedEx specializes in overnight business parcels, averaging eight pounds each, the post office's Priority Mail is a two-to-three day service, which doesn't compete directly with FedEx, and overnight Express Mail tends to be lighter packages of documents, averaging just over a pound, Smith said.

Henderson agreed the two companies offer differing products that can complement each other.

FedEx planes mostly operate at night and Smith said the postal deal will let the company keep some of them flying in the daytime to provide added service. He said FedEx will have to expand its fleet slightly.

Under the air carrier deal, taking effect in August, FedEx will provide about 3.5 million pounds of airlift capacity every day -- the equivalent of 30 wide-body DC-10 aircraft, to carry postal materials.

FedEx reports that it handles about 4.8 million packages each business day. The post office handles about 4 million pieces of Priority Mail and 188,000 piees of Express Mail.

When FedEx-Postal Service talks became public in September, there was discussion of having letter carriers deliver FedEx parcels to households, but that was not part of the final agreement.

However, Henderson said both sides will evaluate their cooperation as time goes by and changes could be made.

The deal is likely to draw opposition from competitors. United Parcel Service has questioned whether it would raise antitrust problems and Emery Worldwide, which operates some air transport for the post office, unsuccessfully sought a court order to block the deal.

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